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Weekly Market Digest: How’s the Economy Doing Heading into Q4?

U.S. equities started the week strong, posting gains on Monday and officially ending the third quarter on a positive note. However, the momentum quickly soured following disappointing data on manufacturing and private payrolls. This left equities in the red, despite a small rebound late in the week. Investors sought safety in bonds and gold, which both ended higher.

Weekly Returns

S&P 500: 2,952 (-0.3%)
FTSE All-World ex-US (VEU): (-0.7%)
U.S. 10 Year Treasury Yield: 1.52% (-0.16%)
Gold: $1,504 (+0.5%)
USD/EUR: $1.098 (+0.3%)

Major Events

  • Monday – California Governor Gavin Newsom signed a bill allowing college athletes to earn sponsorship and endorsement money.
  • Tuesday – China celebrated its national day, marking the 70th anniversary of Communist Party rule.
  • Tuesday – The Institute for Supply Management released its September data reading for manufacturing, which fell to 47.8 from a month earlier, signaling further contraction.
  • Wednesday – An ADP report showed the private sector added 135,000 jobs in September, more than expected but at a softer pace relative to a year earlier.
  • Thursday – Separate reports showed slowing growth in both the U.S. and Eurozone service sectors.
  • Friday – The Labor Department reported that the U.S. jobless rate fell to 3.5% in September.
  • Friday – Hong Kong Chief Executive Carrie Lam invoked emergency powers and banned demonstrators from wearing masks, sparking a fresh wave of protests across the city.

Our Take

The fourth quarter is officially underway, and we’ve already seen a number of economic data points released over the last several days. Most have pointed towards slowing growth. There was a relatively soft report on private payrolls, additional slowing in manufacturing data, and a weaker-than-expected reading from the services sector.

But it’s worth keeping in mind there are still areas of strength within the U.S. economy. Employment is a big one, with the jobless rate continuing to sit at historical lows. In fact, Friday’s jobs report showed unemployment declined to 3.5%, the lowest level since 1969. This is an important metric to watch as it almost always starts climbing at the onset of recessions. We haven’t seen that yet. The data can also be volatile, so one or two elevated readings doesn’t necessarily make a trend.

Housing is another area to watch given it’s such a big piece of the U.S. economy. We’ve seen growth slow a bit, but the market continues to grow, nonetheless. And despite the softer report on the services sector, the ISM reading remained above 50, which continues to signal expansion. Surrounding all of this is a palpable sense of negativity, which on balance can often be a positive driver for stocks.

So despite driving some increased volatility, these recent data points don’t necessarily mean the end is nigh. They do, however, bolster the case for further rate cuts by the Fed.

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